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In preparating the bank reconciliation statement how do you know if the balance is an overdraft or a balance at bank?
The question will have to tell you!
(But you will remember from the lecture that if they say that the bank statement is a Dr balance, then it means that the bank shows an overdraft. If the question says that the bank statement has a credit balance, then it means the statement is showing a balance at the bank.)
Sorry when I say balance im refering to the answer as in when you draw up the bank reconciliation statement when you get the cash book balance how do you know if its an overdraft or balance at bank.
You start with the balance on the bank statement – it there is cash in the bank then it is positive, if it is overdrawn then it is negative.
Any unpresented cheques are negative (the reduce the cash or increase the overdraft) and lodgement that have not appeared on the statement are positive (the increase the cash or reduce the overdraft).If the figure you end up with (which is the balance in the cash account) is positive then there is a balance at bank, if the figure you end up with is negative then there is an overdraft.
(The free lecture on bank reconciliations will help you)
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